Portfolio Manager Insights: Buffett's Massive Cash Hoard
Insights from Prospector Partners, Sub Advisor to the LS Opportunity Fund.

For years, we have read numerous articles and seen countless television commentators refer to Berkshire Hathaway’s “massive cash hoard” as if the company’s entire cash and fixed income balance (which is in the hundreds of billions) could be viewed as “dry powder” for potential acquisitions. This always struck a nerve with us, given our long history of analyzing insurance companies and their balance sheets.

Specifically, what this line of thinking fails to take into consideration is the fact that these balances largely back insurance reserves (liabilities for future claims payments). In fact, much of the time, as can be seen in the chart below, these balances have typically closely matched each other. This is likely no accident. It is our view that Mr. Buffett would want Berkshire to be very liquid in the event of a mega catastrophe, and not in a position of needing to sell equities to pay claims should one (or more) occur.

Indeed, one of the tenets we learned from the late Jack Byrne (our founder, John Gillespie’s, mentor and who Buffett famously dubbed “the Babe Ruth of insurance”) is this: Reserves are policyholders’ money and should be backed by cash and fixed income; investments in excess of reserves are shareholders’ money and should be invested more aggressively.

So, while some portion of Berkshire’s cash & fixed income could arguably be used for an acquisition, for many years, it wasn’t nearly as much as commentators would suggest.

Berkshire Hathaway

All that said, as can also be seen in the chart, it can now (finally) be argued that Berkshire does, indeed, have a “massive cash hoard” which could be used for acquisitions (among other things) if Mr. Buffett so desires. We leave it to others to opine as to why that is, but the fact that Berkshire has sold billions of dollars from the equity portfolio recently, on top of their significant cash flow generation, has put the company in a position of having a buffer above insurance reserves which measures in the hundreds of billions.

That’s a lot of dry powder.

 

Prospector may maintain long and/or short positions in Berkshire Hathaway consistent with its strategies or portfolio mandates.
 
As of 3/31/2025, the Fund contained 56 long positions in the portfolio representing companies with what management believes represents long-term value and favorable characteristics such as a discount to market value, attractive free cash flow yields, and strong balance sheets. The Fund’s top 10 long positions represented approximately 28% of the portfolio and included Brown & Brown (BRO) 4.0%, Abbott Labs (ABT) 3.2%, Progressive Corp (PGR) 3.1%, Globe Life Inc (GL) 2.9%, Arthur J Gallagher Co (AJG) 2.8%, Fairfax Financial Holdings (FRFHF) 2.7%, PNC Financial Se (PNC) 2.7%, Everest Group LTD (EG) 2.5%, Eaton Corp (ETN) 2.5%, and Johnson & Johnson (JNJ) 2.0%. Current and future portfolio holdings are subject to risk and change.
 

Prospector Partners is not affiliated with Ultimus Fund Distributors, LLC.


 

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